California Property & Casualty Broker-AgentProperty InsuranceMedium
A client has an HO-3 policy with a Coverage A (Dwelling) limit of $400,000. They have a detached shed used for gardening supplies, valued at $20,000. A windstorm completely destroys the shed. Assuming no deductible, what is the maximum amount the policy will pay for the shed?
- A$0, as detached structures are not covered.
- B$10,000
- C$40,000
- D$20,000
Show answer & explanationAnswer & explanation
Correct answer: C. $40,000
Under an HO-3 policy, Coverage B (Other Structures) is typically set at 10% of Coverage A. Therefore, 10% of $400,000 is $40,000. Since the shed's value of $20,000 is less than this limit, the policy will pay the full $20,000.
Why the other options are wrong
- A. Detached structures are covered under Coverage B of an HO-3 policy.
- B. This is incorrect. It might be confused with a special limit on certain personal property.
- D. This is the actual value of the shed, but the question asks for the maximum the policy will pay, which is limited by Coverage B.
HO-3 Coverage B Limit
Coverage B (Other Structures) in an HO-3 policy typically provides coverage for detached structures on the insured's property, such as garages, sheds, or fences. The limit for Coverage B is usually set at 10% of the Coverage A (Dwelling) limit.
- Covers structures not attached to the main dwelling.
- Standard limit is 10% of Coverage A.
- Can be increased by endorsement.
Memory trick: Coverage B: 10% for your backyard's 'B'uildings.